The amount of money borrowed from brokerages that do business on the New York Stock Exchange to buy stock rose 3.6 percent to a second straight monthly record, reaching $295.9 billion in February. Margin debt, as the borrowing is called, in January broke the prior high set at the peak of the so-called Internet bubble.

Changes in the level of margin debt have mirrored those of U.S. stock indexes. After setting an all-time high of $278.5 billion in March 2000, margin debt dropped to less than half that amount by September 2002. It reached $285.6 billion in January.

UPDATE: March 19, 2007 5:05pm

As I read the NYSE rules on this, I do not believe Shorts are included in this;

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

No one said to look at it in a vacuum. Get out your little facts book and analyze it any way you want,

If you had 100,000 debt 10 years ago, got rid of it, and now found yourdelf with a hundred thousand debt again today, would you run around telling everyone that, relly, you are much better off this time?

Barry, I would suggest that you build a chart that divides the margin with the cash side and then
plot that chart in historical time frame.I don’t have access to that data but If I had I would surely be interested in finding out.I am not sure if the absolute numbers by itself is all that useful.

people use margin to short sell super-anon…that is leisa’s point (i believe) and one i have advocated as well.

Not sure how it works for the purposes of these calculations, but I’ve sold a number of stocks short without incurring any margin debt unless the positions are underwater. I don’t know if other brokerages work differently. And this is entirely different than my leveraged long positions which immediately cause margin debit increases.

Regarding margin debt to short….There are a bunch of short and 2x short ETF’s and by golly their volume has increased. With the advent of these vehicles, one could margin precariously to be short the market in an ETF. The margin requirement for QID is 30%.

It would seem to me, but I don’t fully understand all of the mysteries of the market, that the ETF dynamics to the overall market character have to be a bit murky.

Regardless as to whether it includes shorts or is normalized to market cap, to me it’s another data point suggesting we’re closer to a major top (ahead or behind) than we are to an important bottom. As a percent of market cap, I would guess this peak is greater than 2000. Can’t imagine what level it goes to if Cody’s correct about the marlket toppoing out in the 2008-2009 timeframe!

The statement “Changes in the level of margin debt have mirrored those of U.S. stock indexes” is pretty key. If you run the chart back as far as Bloomberg has the data (01/92) you see it mirroring the indexes and hitting new highs consistantly for over 8 years. Suggestions of normalizing the data are good. Despite set backs in tough periods this chart will go to the sky over the long term. It’s not mean reverting. If you look at the trajectory you may gather some usefull info, but you’d better look at a logarithmic graph, which this one is not. Looking at log graph now, looks like a pretty good chart. I don’t know if I can post Bloomberg’s graphs here, but you might like it as much as that inverse graph you posted about a week ago Barry! Currently in btfo mode…

With margin debt costing say, 9% – just how much more than 9% do you think you’re going to earn owning stocks right now? If it’s not 18% then you’re engaging in risky behavior of the kind kids display in jumping out of trees time and again. Think 2000, then think Now. Time and again. I’m short, and using the funds generated to buy ultra short funds. Oops, I’m with you!

you need to check out sentimentrader.com. it addresses this very issue. to sum it up, this stat doesn’t mean crap. cash balances are also at record highs making the ratio of cash/margin its lowest in over 10yrs. sorry barry, i agree with alot things you have to say but this stat is not representative of anything in my view.

the point you are all missing is that stocks are ripe for profit taking so buyer beware also the big money guys know this so we will have a correction and you need to stay out of the way or you can just email me 20% 0f your portfolio

Where you can find Margin Debt from January 2000 through February 2007.

An interesting note is that ‘Free Credit Cash Accounts’ — where individual investors can borrow as much as 50% of the capital in their account — begins in 2003. I assume the NYSE began offering the service at that time.

This timing coincides with a bottoming of interest rates. At this turn around point in 2003 both market performance and total margin debt climbed in steady fashion to record highs. The implication is that opening access to credit and cheap credit has played a direct big impact to the market pricing itself (as opposed to just boosting economic activity making the stocks cheap.)

If you would like to pursue the story behind the numbers in more tangible ways, I suggest reading the annual reports of major brokerages.

Of course those numbers only reflect a small amount on a segment of a brokerage’s huge business. But GS is big and increase from 18.7x to 25.2x during a bull market (at the same time more money is coming in) then the dollar amount leverage is awesome.

In the end I want to point out that while the margin debt is high — and worrisome because it makes stock pricing sensitive to minimum expectations of strong growth for a block of stocks large enough to overwhelm the markets (technically and mentally) — that there is a new significant player that wasn’t present during the 2000 bubble.

To speculate, I would suggest a combination of larger derivatives markets, accessibility to consumer investors via online discount brokerages, and of course the growth of private equity groups and hedge funds.

Furthermore, older players were probably shifted into riskier investments by the depression of the bond markets caused international capital arbitrage (Yen carry trade, China maintaining its currency at unsustainable low levels, petrodollars, growth by technology transplants into India and Brazil.)

howard gold said the point you are all missing is that stocks are ripe for profit taking so buyer beware also the big money guys know this so we will have a correction and you need to stay out of the way or you can just email me 20% 0f your portfolio

The latest Commitment of Traders data shows commercial traders are the least hedged in several years. They reduced their short position significantly.

i find it so fasinating how everyone’s out to kill the mystical bears every time they so much as pop there head above water. FOR INSTANCE NOBODY TAR AND FEATHERED THE BULLS THE LAST 3 WEEKS AS 95% OF EVERY TALKING HEAD ON TV OR PRINT WAS SAYING WE’D RALLY AND WE HAVE. why aren’t people pointing too how not a one bull has said we can fall 10%?it always go after the non existent bear and kill him

Can’ t the law of big numbers apply in this instance? Perhaps margin debt can only go so high and that what we have here is a simple, but major and dangerous double top in margin debt? Everyone else is just guessing here, so that’s my stab at it.

Anyway, common sense would dictate that for margin debt to be back where it is, isn’t such a wonderful thing – at least for the long side.

to each their own, to me debt is debt. wether you call it margin,leverage or what ever,you still owe somebody money (usually with interest). they can call it in any time, usually at the worst time.if i had to borrow money it would’nt be to gamble with.like i said, to each their own.

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Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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